Flags of Canada, Mexico and the US are seen before a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico. Picture: REUTERS/EDGARD GARRIDO
Flags of Canada, Mexico and the US are seen before a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico. Picture: REUTERS/EDGARD GARRIDO

Chicago — Automotive companies are griping that the US plan to modify the North American Free Trade Agreement (Nafta) is so strict it would cripple an industry that it’s supposed to help.

No North American-built vehicle would be eligible to benefit from tariff exemptions under Nafta if the US gets its way, and the administration’s proposals would be especially bad if they’re linked — as US President Donald Trump hinted at in a tweet — to potential levies on steel and aluminium, said John Bozzella, president of the Association of Global Automakers.

"This could be a double whammy. We could end up with both the tariff and an unworkable Nafta, or with an unworkable Nafta in exchange for the tariff," Bozzella said in an interview on Tuesday. "It’s not much of a bargain."

In a bid to modernise Nafta and boost US manufacturing, Trump wants to change the regional content requirements, or rules of origin, that dictate where car components come from. His administration has proposed raising the North American requirement to 85% from 62.5% for a typical car and add a US-specific requirement of 50% content, while also rewriting the list of which products are tracked. All US-sold vehicles fall short of these targets, Bozzella said.

The North American automotive industry is far more than Detroit’s traditional Big Three. The Washington-based trade group led by Bozzella represents companies that are mostly headquartered outside the US but boast more than 30 manufacturing facilities in the country. Its members include Japan’s Toyota, Germany’s Robert Bosch and South Korea’s Hyundai.

Partners’ pushback

Canada and Mexico have largely rejected the US proposal, which Bozzella said could also harm the ability of North American vehicle makers to compete with Asia and Europe. Canada has suggested negotiators discuss fresh ideas on how to calculate the value of regional content, including giving more credit for driverless and electric vehicles (EVs). Bozzella called Canada’s ideas encouraging.

Meanwhile, Trump’s plan to implement a 25% tariff on steel and a 10% tariff on aluminium would raise car prices in the US, invite retaliation from trading partners and slow the pace of exports, Bozzella said. It would also swallow up the potential economic stimulus resulting from recent US tax reform.

Bozzella acknowledged that the automotive industry sometimes disagrees with Trump on policy, but he said it’s a good thing the administration declared a vibrant US automotive industry as one of its top goals from the very beginning. "Their heart is in the right place," he said. "It’s a matter of constant engagement to get to the right answer."

— With assistance from Eric Martin and Josh Wingrove

Bloomberg

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